Adaptec 2003 Annual Report Download - page 62

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Accrued liabilities. The components of accrued liabilities are as follows:
December 31,
(in thousands) 2003 2002
Accrued compensation and benefits $ 18,062 $ 18,962
Other accrued liabilities 32,178 34,568
$ 50,240 $ 53,530
Foreign currency translation. For all foreign operations, the U.S. dollar is the functional currency. Monetary assets and liabilities in
foreign currencies are translated into U.S. dollars using the exchange rate at the balance sheet date. Revenues and expenses are
translated at average rates of exchange during the year. Gains and losses from foreign currency transactions are included in Interest
and other income, net.
Derivatives and Hedging Activities. PMC’s net income (loss) and cash flows may be negatively impacted by fluctuating foreign
exchange rates. The Company periodically hedges foreign currency forecasted transactions related to certain operating expenses. All
derivatives are recorded in the balance sheet at fair value. For a derivative designated as a fair value hedge, changes in the fair value
of the derivative and of the hedged item attributable to the hedged risk are recognized in net income (loss). For a derivative designated
as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive income
and are recognized in net income (loss) when the hedged item affects net income (loss). Ineffective portions of changes in the fair
value of cash flow hedges are recognized in net income (loss). If the derivative used in an economic hedging relationship is not
designated in an accounting hedging relationship or if it becomes ineffective, changes in the fair value of the derivative are recognized
in net income (loss).
Fair value of financial instruments. The estimated fair value of financial instruments has been determined by the Company using
available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting
market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the
amounts that the Company could realize in a current market exchange.
The Company’s carrying value of cash equivalents, restricted cash, accounts receivable and accounts payable approximates fair value
because of their short maturities.
The fair value of the Company’s short−term investments, and investment in bonds and notes are determined using estimated market
prices provided for those securities (see Note 4). The fair value of investments in public companies is determined using quoted market
prices for those securities. The fair value of investments in non−public entities is not readily determinable due to the illiquid market
for these investments. The fair value of the deposits for wafer fabrication capacity is not readily determinable because the timing of
the related future cash flows is not determinable and there is no market for the sale of these deposits.
The fair value of the convertible subordinated notes at December 31, 2003 approximated their carrying value (2002 − $207.6 million),
as the Company completed a tender offer for a portion of the outstanding notes on January 6, 2004, at par value. These notes are not
listed on any securities exchange or included in any automated quotation system. The recorded bid and ask
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